Stocks · Intermediate · 5 min

Share classes: common, preferred, dual-class

You can tell common, preferred and dual-class shares apart and explain what each means for dividends, votes and control.

Same company, two shares

Look up some large companies and you will find two or even three listings: different tickers, different prices, sometimes different dividends. It looks like a mistake. It isn't.

Companies can issue different classes of shares, each with its own rights. Which class you hold decides whether you can vote, when you are paid and how much say you really have. This lesson explains the three types you will meet most often.

Votes, priority, control

Comparison Three share types: common shares vote and are paid last, preferred shares usually have no vote but are paid first, dual-class structures give insiders more votes per share. Common Votes Dividends if declared Paid last Preferred Usually no vote Paid before common Dual-class Two classes More votes for insiders

Common stock. Common stock is the standard share. The SEC describes it as giving its owners the right to vote at shareholder meetings and to receive dividends when the company pays them. In return, common shareholders stand last: if the company is wound up, they get what is left after everyone else.

Preferred stock. Preferred stock trades votes for priority. Investor.gov notes that preferred shareholders usually have no voting rights, but receive dividends before common shareholders and rank ahead of them if the company is liquidated. Many preferred shares pay a set dividend, which makes them behave partly like bonds. Their prices often move less than those of common shares, and they may rise less in good times.

Dual-class shares. With dual-class shares, a company issues two or more classes with different voting power. A typical setup: one class for the public with one vote per share, and one class for founders or insiders with ten votes per share, or the public class with no vote at all. This lets founders keep control even after selling most of the company.

Supporters argue that this protects long-term plans from short-term pressure. Critics point out that the controlling owners cannot easily be voted out, even when the other shareholders disagree. Some index providers and stock exchanges have specific rules for such companies.

Names differ between countries. Class A and class B are common labels, but which class carries more votes depends on the company. In Germany, preference shares usually carry no vote in exchange for a preferential dividend.

10% shares, 53% votes

A fictional company has two classes:

The founders own 10% of the shares but control 100 of 190 million votes, about 53%. However the public votes, the founders decide. Both classes may still receive the same dividend per share. A public shareholder with 1,000 class A shares holds about 0.0005% of the votes. A founder selling half of the class B shares would still hold 50 of 190 million votes, about 26%, and could often still block decisions that need a large majority.

Common mistakes

The takeaway

Not all shares are equal. Common shares vote, preferred shares get paid first, and dual-class structures let some owners control with fewer shares.

Check yourself

Quick quiz

4 questions. Instant feedback, nothing is saved.

  1. 1Tap the structure in which some shareholders have more votes per share than others.

    Tap the chart.

    Comparison Chart for the question: Tap the structure in which some shareholders have more votes per share than others. Common Votes Dividends if declared Paid last Preferred Usually no vote Paid before common Dual-class Two classes More votes for insiders

    In a dual-class structure, one class carries more votes per share, often held by founders or insiders.

  2. 2What do preferred shareholders usually get in exchange for having no vote?

    Investor.gov: preferred shareholders usually have no voting rights, but receive dividends before common shareholders and have priority in a liquidation.

  3. 3Founders hold 10% of the shares but 60% of the votes. How is this possible?

    If their class carries, for example, ten votes per share and the public class one, a minority of shares can control the majority of votes.

  4. 4Which shareholders are usually paid last if a company is liquidated?

    Creditors such as bondholders come first, then preferred shareholders, then common shareholders, if anything is left.

of 4 correct.

Sources